Network Structure as Corporate Governance: Evidence from Innovation Underinvestment

<jats:p>This paper examines how interfirm innovation network structure mitigates underinvestment arising from hold-up under incomplete contracting. Baseline results show that firms occupying more central positions in patent-based co-invention networks exhibit significantly lower underinvestment. The effect is strongest when hold-up frictions are most severe. To address endogeneity, I exploit exogenous variation in technology fields generated by examiner-induced claim reductions. Additional evidence suggests that network centrality mitigates hold-up frictions through improved asset redeployability and is particularly important in shaping product-market scope, financing capacity, and partners’ innovation outcomes when underinvestment is high. The findings highlight network structure as an informal governance mechanism.</jats:p>